Another wild week on Wall Street. Markets climbed back into record territory, as signs that the credit crunch may be over — or at least is easing — abounded.
The big winner for the week were REITs, exploding upwards 6.2%. Right behind them were the Russell 2000 small caps, up 4.9%. Both of these reflect a newly rediscovered taste for speculations. Big cap Tech stocks lit up, jumping 2.9%. European and Global stocks up 2.4 and 2.1% respectively, while the S&P500 gained 2%. By comparison, the Dow seemed almost sedate, tacking on 1.2%.
Commodities were the week’s loser: CRB futures lost 1.4%, with Oil down half a percent, and gold marginally negative. The US dollar slipped only 0.1% this week.
While some people saw conspiracy theories, we will merely note the convenience of the latest NFP revisions: They were so awful in August that the Fed had to slash 50 basis points off of the Funds rate — but it turned out to merely be a counting error of school teachers. A few weeks ago, we were in an economy so bad as to need emergency Fed CPR (get me the paddles! clear!), only to be told that the economy is doin’ just fine after all. I like the visual of Central Bankers as Emily Litella: Nevermind! (We don’t advise holding your breath waiting for the Fed to take that panic 50 cut back anytime soon).
Barron’s Trader column noted:
In all, it took the S&P 500 a mere 27 days to skid 12% from its mid-July peak to its Aug. 16 low, and 51 days to rebound to another new high. Previous corrections of 5% or more during this bull market have resulted in a stronger market at least in the short term, with the S&P 500 rising roughly 2.4% in the month after that rebound high, according to the researchers at Bespoke Investment Group.
But the recent stock grab may have front-loaded the anticipated fourth-quarter rally. "I don’t think the market will fall apart as earnings are still growing, but upside is likely very modest from here," says Peter Dunay, Leeb Capital Management’s investment strategist. Until then, the market will consolidate — until fresh evidence shows the Fed’s monetary stimuli have managed to spur economic growth.
There’s lot more to cover, and the open road is calling my name. Let’s get busy:
INVESTING & TRADING
• Stocks ended a record-shattering week on a high note, powered by the jobs news: The unexpectedly poor jobs report last month caused stocks to tumble, and may have spurred the Fed to slash rates by a bigger-than-expected half-percentage point in mid-September. After stocks hit record highs in mid-July amid a wave of deals and liquidity, the housing sector spiraled downward and credit markets froze in a general pullback from risk. The August jobs report, which arrived in early September when markets were still extremely fragile, seemed to indicate that the credit crunch was pushing the broader economy toward recession. Now, it looks as though the hand-wringing about those data may have been unnecessary. (Wall Street Journal)
• The bullishness is contagious. This is a genuine Marketwatch headline: Stocks headed ever upward
• Merger Frenzy Winds Down After 6 Years: The party is over. And what a party it was. Six straight years of a
growing mergers-and-acquisitions market, culminating in a last,
deal-heavy splurge in July. Between 2002 and Sept. 30, 2007, there were
$15.5 trillion of transactions, the biggest stretch of deal making in
history, even when adjusted for inflation. How hot has this market been? Even including the steep drop-off in deal
making during August and September, the year’s first nine months have
made 2007 the busiest year ever for mergers and acquisitions. The
period produced some $3.63 trillion in transactions, slightly
surpassing the 2006 full-year figure, outpacing 2005 by more than 30%
and 2004 by nearly 100%, according to Thomson Financial. (WSJ)
• Innocents Abroad: Why European banks were the big losers in the U.S. subprime meltdown: Some of the biggest names in continental finance have been laid low on U.S. subprime debt. In March, Natixis, a large French bank, said it had $1.4 billion in exposure to the U.S. subprime market, having extended credit to failed subprime lender New Century Financial. In July, IKB, a German business lender, came a cropper on bad subprime bets, precipitating a bailout. In August, state-owned SachsenLB, having made similarly ill-timed investments in U.S. subprime mortgages, bailed out and then sold at a knockdown price. On Monday, Swiss giant UBS, a far larger and more sophisticated operation, said that problems, "mainly related to deteriorating conditions in the US sub prime residential mortgage market," would force it to take a charge of about $3.4 billion and cause the company to suffer its first quarterly loss in nine years. Executives’ heads rolled. (Slate)
• Citi? UBS? They may have just been the beginning: A tale of
WAMU: Washington Mutual Says Third-Quarter Profit Fell 75% Washington Mutual, the biggest U.S. savings and loan, said
third-quarter profit fell about 75 percent after the worst housing
slump in 16 years caused more borrowers to default.
MER Merrill’s $5 Billion Bath Bares Deeper Divide: Merrill Lynch & Co.’s announcement Friday that it would take a $5.5 billion hit to third-quarter earnings is exposing the weak oversight exercised by top Merrill executives as it became a big force in the mortgage-securities business.
• Property Insurers Cheapest Since 2000 on Mistaken Subprime Link: It’s better to be lucky than smart, unless you’re Travelers Cos., Ace Ltd. or any of the dozens of property and casualty companies that investors assume are so dim that they must have invested in subprime mortgage debt. Insurers traded at their cheapest stock market valuations since 2000 in the quarter ended Sept. 30 because of concern they are saddled with losing investments tied to the housing market slump. The truth is their holdings linked to U.S. mortgages for people with bad credit histories represent about 1 percent of fixed-income assets, according to Fitch Ratings. (Bloomberg)
• Deal Is Complete to Take Archstone REIT Private:
Can anyone please tell me why this private transaction was financed in
part by Fannie Mae and Freddie Mac? Anyone? Anyone? (New York Times)
• Bagehot Had Credit-Crunch Answers 130 Years Ago: Walter Bagehot, an economist and author writing in the 19th century, had the answers to the current credit crunch.In 1866, the U.K. money markets were in turmoil. The collapse of a private bank called Overend & Co. threatened to destroy the fragile trust underpinning the credit system.The parallels with today are powerful, as ripples from the crash in the U.S. subprime mortgage market threaten to swamp parts of the financial markets. Central banks are losing control of monetary policy, as short-term money-market rates jump and long-term bond yields develop immunity to policy changes. Their sovereignty is under fire, as the crisis forces them to be reactive rather than proactive. (Bloomberg)
• Can investors’ ‘broken brains’ ever be ‘fixed?’ Want to learn how to harness your brain power and get rich? Well, folks, there are two basic minicourses covering the mysterious world of the investor’s brain, also known as behavioral finance or neuroeconomics or just plain investment psychology. (Marketwatch)
The Wall of worry continues to build:
• Dollar Lifts Exporters, Blunting Housing Bust: As long as the dollar’s decline is gradual, most economists see it as a modest plus overall. Joshua Feinman, chief economist at Deutsche Asset Management, wrote in a recent note to investors that the export upswing is one of the factors "poised to help cushion the impact of the housing correction." Real exports have grown faster than real imports for nearly two years, notes Mr. Feinman, and he expects this trend to continue. U.S. exports rose 2.7% to a record $137.68 billion in July, according to the Commerce Department. Mr. Feinman estimates stronger exports have contributed a half percentage point of added growth to gross domestic product since 2005. (Wall Street Journal)
• When ever I start to wonder if I am being too cynical, I skip across
the pond to see what the UK papers have to say. That distance affords
some objectivity — or at least, less cheerleading — that the US media
• Dollar’s double blow from Vietnam and Qatar: Vietnam is planning to cut its purchases of US Treasuries and other dollar bonds, raising fears that Asian central banks with control over two thirds of the world’s foreign reserves may soon join the flight from US assets. (UK Telegraph)
• U.S. consumer credit rises in August:
U.S. consumer debt rose at an annual rate of 5.9% in August, pushed
higher mostly by a hefty gain in credit-card debt, the Federal Reserve
reported Friday. The overall increase of $12.2 billion was the highest
since May, the
Fed reported. It pushed total outstanding consumer credit to $2.47
trillion in August, up from $2.46 trillion in July. Outstanding
consumer credit rose by an upwardly revised 4.7% in July. It was
originally estimated to rise by 3.7%.
• Shifting Targets: The Administration’s plan for Iran: In a series of public statements in recent months, President
Bush and members of his Administration have redefined the war in Iraq, to an
increasing degree, as a strategic battle between the United States and Iran.
“Shia extremists, backed by Iran, are training Iraqis to carry out attacks on
our forces and the Iraqi people,” Bush told the national convention of the
American Legion in August. “The attacks on our bases and our troops by
Iranian-supplied munitions have increased. . . . The Iranian regime must halt
these actions. And, until it does, I will take actions necessary to protect our
troops.” He then concluded, to applause, “I have authorized our military
commanders in Iraq to confront Tehran’s murderous activities.” (The New Yorker)
• WTF?! Republicans Grow Skeptical On Free Trade (free Wall Street Journal)
TECHNOLOGY & SCIENCE
• The iPhone Freedom Fighters: Don’t be afraid: Unlocking Apple’s superphone is legal, ethical, and just plain fun. Apple is not happy with its customers. Disobedient iPhone owners are unlocking their iPhones (modifying them to work with carriers other than AT&T) and installing "unauthorized" third-party apps. Last week the company struck back with a software update that acts much like a virus. It wrecks the operation of third-party applications and can turn unlocked iPhones into "bricks." Is Apple on the right side of this fight? Is it really wrong or illegal to unlock your iPhone? Well, I figured, there’s only one way to find out. . . (Slate)
• Microsoft launches online e-health service Microsoft Corp. has launched an online health-care service designed to help patients take control of their health records and monitor their medical conditions. Microsoft’s HealthVault, announced Thursday in Washington, D.C., will allow users to store and share health records online, to collect and manage health data on a variety of home devices, and to search for health information. (Computerworld)
MUSIC BOOKS MOVIES TV FUN!
• I posted a full chapter from a fascinating new investing book: Inside the Investor’s Brain: The Power of Mind Over Money. Long time readers know that I have been a big fan of books that seek to explain how are brains are wired, and how this hard-wiring frequently sends us astray as investors. Way back in 2005, I wrote a column titled Know Thyself. Because
Human nature so often runs counter to successful investing, its
important to understand — and resist — many of your baser instincts. This book helps you do just that.
• coming soon: Tasered from 100ft away
That’s all from what looks to be a lovely, almost beach weather weekend in